Redundancy Payout Options

BuddhaBoy on 24/10/2024 - 13:23

Hi Everyone, I was advised last week that I’m being made redundant. I’ve never experienced this before, and with it being the end of the year, it came as quite a shock. However, I’ve now come to terms with the situation and I’m planning my next steps.

I’ll be receiving just over three months of salary as a payout, which will keep me covered for the next few months while I search for a new job. I also have some savings that can support me beyond that.

My question is about the payout itself. I’m expecting around $35k, which includes my accrued annual leave. I’m considering maxing out my super contributions but wanted to know if there are other ways to maximize this cash influx. Also, how is tax calculated for large payments like this?

Any advice or suggestions would be greatly appreciated!

Financial

Comments

  • jetblack on 24/10/2024 - 13:30
    +5

    I'm a fan of dropping money into Super, but keep in mind:

    Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit

    Therefore, the tax advantage of dropping money into super may be reduced.

    • dtc on 24/10/2024 - 14:05
      +3

      You can get part redundancy tax free and then put in a concessional contribution and get a tax deduction against your other income. So you still get the tax benefit - but the extent of the benefit depends on other income and consequential marginal rates. Still, that decision doesnt have to be made right now - OP can wait until June next year and see whether their marginal rate for the year (getting another job etc) means its worth it nor not.

      So, for the OP - take the money, put some aside in a HISA and come May or June, think about whether making concessional contributions is worthwhile.

      Even non concessional can be worthwhile, the main benefit here is that future income is taxed at 15% rather than at your marginal rate. However, no tax deduction

      • kanad on 24/10/2024 - 15:05

        You can make an after tax contribution and then claim it as concessional (up to total 30K) via the NOI form and get the tax deduction.

        • sumyungguy on 24/10/2024 - 15:18

          And if OP's super balance is below $500K he may have unused concessional cap amounts from previous years.

          • fredblogs on 25/10/2024 - 17:15

            @sumyungguy: where's this 500k figure come from?

            • sumyungguy on 25/10/2024 - 17:24
              +1

              @fredblogs: Unused concessional cap carry forward
              From 1 July 2018 if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap and make additional concessional contributions for any unused amounts.

    • HeWhoKnows on 25/10/2024 - 22:45
      -3

      I dont think thats the case.

      Redundancy pays dropped into super definitely avoid tax.

      The rest is taxable.

      Best to get professional tax advice

  • Dollar General on 24/10/2024 - 13:31
    +6

    Redundancy part is tax free. Payout of entitlements taxed as per usual

    • sumyungguy on 24/10/2024 - 14:21
      +1

      Tax free up to a limit depending on completed years of service. OP can simply re-assess financial/employment status in June then make a lump sum non-concessional super payment considering his applicable limits.

  • FezMonkey on 24/10/2024 - 13:35
    +15

    I would just say be careful about overspending while you are without a job. Seeing that large bank balance may tempt you to be very flippant with spending.

    By all means treat yourself but ensure you are still well covered for a few months without income.

    • BuddhaBoy on 24/10/2024 - 14:20
      +4

      Def tempting. Initial thought was - holiday! Quickly realised job market is tough. Need to budget expense plan for the next couple of months.

      • FezMonkey on 24/10/2024 - 14:28
        +2

        Not a bad idea to have a small holiday. I'm sure you deserve it.
        Just don't burn through $20k doing a month in Europe :)

        Though once you have a new job and have saved up some leave you can always spend the funds on a big holiday then!

      • Nugs on 27/10/2024 - 05:27
        +1

        "Quickly realised job market is tough"
        Apparently roof repointers are thin on the ground…..
        .

  • Ynk on 24/10/2024 - 13:37
    +13

    Your taxable income this FY will be low as we are only 4 months in and the majority of the payment will be tax free. You are much better off holding off any super contributions until you have secured a new role, as you approach the end of the FY you can then make a determination as to making a contribution which will net the same tax saving. Depending how long it takes you to find something else you might be better off making the contribution next FY.

    • BuddhaBoy on 24/10/2024 - 14:16

      Really good advice. Thank you so much!

  • JIMB0 on 24/10/2024 - 13:39
    +1

    There a few different parts to your payout. Any untaken leave is taxed at a concessional rate, works out the same as if you'd actually taken it. Some items fall under lump sum D which is tax free. Severance payment is generally tax free. Best to contact your accountant for proper tax advice.

  • 87percent on 24/10/2024 - 14:00
    +5

    The market right now is shit, and with the lead up to Christmas, will be worse. Be prepared to have to wait out until early next year for a new role

    • BuddhaBoy on 24/10/2024 - 14:18

      Yeah, the timing is really bad. Got the same feedback from recruiters. Will have to keep and eye out and hoping I get something early in the year 2025.

      • kanad on 24/10/2024 - 15:03
        +4

        FWIW, market is bad this of the year, but it is not zero. There are also very few people who want to change job during this time, competition is low, so still keep looking. Twice, I have got job in Nov and Dec. In the Dec job I was the only candidate they interviewed, there was only another one they shortlisted for resume but the guy dropped off.

        • BuddhaBoy on 24/10/2024 - 15:47

          That’s great, thanks for sharing your experience.

  • arkie0 on 24/10/2024 - 14:07
    +3

    As others have said, the redundancy payout part is tax free. The annual leave payout is taxed at your normal rate at the end of this financial year. The immediate annual leave payment may be taxed at a concessional rate, but the tax office will tax you at your normal rate at the end of the financial year.

    As someone who was made redundant this year even though the news says there is a lot of new jobs being created and employment rate is low, job market is tough at the moment. Should wait until you get a new job before spending it, whether it's extra super contributions or something else.

    • BuddhaBoy on 24/10/2024 - 14:19

      Thanks for the advice. Annual leave is a big chunk of my payout so looks like I’ll be taxed as normal.
      I should start budget planning for the next 6 months.

    • sumyungguy on 24/10/2024 - 14:41
      +1

      Redundancy payment is tax free up to a limit based on years of service; which I don't believe OP has disclosed

      • arkie0 on 24/10/2024 - 15:18
        +1

        Yes but he also said total was 35k including annual leave, extremely unlikely he will hit the cap.

        • sumyungguy on 24/10/2024 - 15:24

          Don't know without knowing years of service and amount of accrued ARL. If a private sector employee, redundancy packages can be somewhat more generous than what's stated in employment contracts.

          • Some Guy on 24/10/2024 - 18:28

            @sumyungguy: It is the award for the OP's industry that determines what are the minimum conditions for redundancy, not the contract. The employment contract may go over and above the award conditions, but not below.

            • sumyungguy on 24/10/2024 - 18:35

              @Some Guy: That's what I'm saying. Redundancy in the NES is pretty minimal. Private sector who are likely the ones applying NES entitlements will often pay more as a gesture of goodwill, cynical or otherwise. For all we know OP is public sector with more generous award provisions. So we can't deduce the amount of tax-free redundancy from a gross figure.

  • kanad on 24/10/2024 - 15:00
    +5

    Don't put any additional money into super now, once in it cannot be taken out. What if you need the money. You can always do a personal contribution before June 30 next year and claim back the tax using the NOI form

    • BuddhaBoy on 24/10/2024 - 15:49
      +1

      Great advice, thank you

  • Ocker on 24/10/2024 - 15:48
    +2

    Free advice is worth what you pay for it - sfa

  • original15 on 24/10/2024 - 15:51
    +1

    Sorry to hear about the redundancy - has your employer offered an outplacement type service (pairs you with a career advisor that helps with your resume, Interview practice and job hunt etc)?

    • BuddhaBoy on 24/10/2024 - 15:52
      +1

      Yup they have offered that and it has been helpful. I am also reaching out to my networks and spreading the word out..

      • original15 on 24/10/2024 - 16:17

        good to hear, hate situations where this isnt on offer. Had a mate get made redundant on like Dec 20th a few years back, on a Friday. Really poor form. Never on a Friday people

  • Some Guy on 24/10/2024 - 18:22
    +3

    I was offered redundancy in the early days of Covid. I would get your employer to confirm the award that underpins your contract and check the Fairwork Australia website to ensure that your redundancy package is complete including anything extra your employer is offering. Not all awards are the same, or what you think it would be, when it comes to redundancy.

  • morse on 25/10/2024 - 07:36

    I would look to do some kind of work until you find your next job. Not necessarily what you normally do or you long term next job but something that means you’ve got at least some income coming through. Not so much that you’re too busy for interviews etc but something that means you’re actually getting slightly more than what you would have earned in those few months. I heard Dan Murphy’s advertising for Christmas casuals and I bet a lot of businesses will be the same in the lead up to Christmas.

    Put the money in a high interest account that you’re able to access still, as you might need it. Don’t stress about tax. If you earn more you pay more tax but you still end up ahead overall.

    All the best with your job search.

  • MahjongKing on 25/10/2024 - 08:37

    Depends how good your employer is, you might get an estimate of what you'll be receiving including tax being withheld. But leave entitlements are usually taxed at 32% which includes the 2% Medicare even if you are on the highest tax bracket.

    I maxed out super too plus the carry forward and got a nice chunk back during tax time. Not same amount of course but still very nice. You have until next 30th June to make that decision anyways.

  • coffeeinmyveins on 25/10/2024 - 09:28
    +3

    Putting your money into super is not a great idea when you don't have a job.

    It's not like you can get it back out if you don't have a job for the next 6 months.

  • cfuse on 25/10/2024 - 10:14
    +4

    Do nothing with that money until you have a new job.

    If anything, take this as an opportunity to review your spending.

    • snapper17 on 25/10/2024 - 16:46
      +3

      agree with cfuse. Also consider starting a side business to see if that works better for you. Search youtube for businesses with low start up costs.
      I met a pressure washer guy he said all you need is a decent ute or van and 3k worth of equipment. He said he was making decent money and was in high demand.
      Some people are doing remote admin for companies.
      Try to do something that you always wanted to do whilst searching for jobs at the same time.
      Dont be too fussy with job offers.
      Good luck.

      • BuddhaBoy on 25/10/2024 - 19:31

        Great advice, thank you!

  • xylarr on 28/10/2024 - 14:44
    -1

    See if you can take your leave as leave as opposed to having it paid out. When you take leave, you are still "working" and earn more leave, and also you earn more time in the job, therefore potentially increasing your redundancy payout - depending on how it's calculated (is it pro-rata?). Theoretically, if it wasn't pro-rata, but you were very close to an extra year of service, taking you annual leave may push you into the next year of service, thereby earning you the redundancy benefits of an extra year of service. For me (if I was redundant) that would be an extra three weeks of pay - not to be sniffed at.

    • Jono05 on 29/10/2024 - 00:23

      OP is being made redundant, how can he take the leave portion as leave when there is no job. Obviously you don’t know how redundancies work.

      • xylarr on 29/10/2024 - 12:35
        -1

        If you say so

        • Jono05 on 29/10/2024 - 18:42

          Lol

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